John Drinnan: Sky's power gone like magic

Accusations that pay-TV firm has the strength to shut out competition made to vanish by Commerce Commission

The Commerce Commission's vanishing trick could sit comfortably in a Bewitched script.

The Commerce Commission has magicked away accusations that Sky Television has the power to shut out competition.

Someone at the commission has wiggled their nose and - shazam! - Sky's dominance of content has vanished, now we're in the brave new world of Ultra-Fast Broadband (UFB).

The commission this week said it would not take legal action against Sky for "historic" breaches of competition rules, which restricted internet service providers' ability to buy content elsewhere, but said it would be keeping an eye on the pay-TV operator.

The commission appears bewitched by the idea that breaches of Commerce Act competition rules are in the past, and that new pay-TV players can start a viable service on UFB by going outside Sky content deals.

It will be interesting to see evidence of that.

Over the years Sky has undertaken some heavy lobbying of politicians and has maintained a charmed position as an unregulated virtual monopoly.

For years politicians waved off demands for regulation, or at least investigation, and Sky has grown bigger and more dominant.

Now the commission has declined to take legal action on past breaches because it believes the market has changed, and there are signs that some players are breaking through Sky's hold on content.

The Coliseum deal with Telecom for internet broadcast of the English Premier League showed that programming deals can be done, but with its hold on the big three - rugby union, league and cricket - Sky still calls the shots.

And if the market has now changed, it may have changed much more, and more quickly if the politicians had done their jobs.

ComCom chairman Mark Berry acknowledges that Sky's actions hindering competition helped it maintain its position in the market.

Sky chief executive John Fellet has never accepted that Sky has an unfair place in the market. Nor has he accepted industry demands for regulation.

If Sky had done anything wrong, he reasoned, the commission would be coming after it.

Berry appeared unsurprised by the lack of any mea culpa. He has spoken with Fellet at length, spelling out the terms of the warning, and insists that warning has teeth. If Sky refused to allow a content client from obtaining material elsewhere, the commission could swiftly initiate legal action.

The reason the commission did not pursue a legal case, said Berry, was because Sky's breaches were not sufficiently detrimental to warrant it.

"We fashioned it so we ended up with the outcome of a better market. It is on notice if they do grant one we are likely to take action on a forward-looking basis."

But after the first investigation into New Zealand's uniquely unregulated pay TV sector, it is hard to escape this conclusion: there were breaches, these affected the market, but the commission optimistically believes that despite Sky's dominance, the New Zealand market for pay-TV is free.

VODAFONE AND SKY

One unusual aspect of the ComCom inquiry was that it was repeatedly delayed and extended. The Herald was told in July it would be released in two weeks' time; it finally happened three months later. Berry said: "We found ourselves pausing because of developments and the state of flux in the industry - the market dynamics were changing.

"By updating ourselves we are well positioned to take any proceedings."

But it is also tempting to see the delays in the context of tensions between the commission and the Government, after National intervened in the commission's finding reducing copper wire charges, instead working to increase the price to support Chorus and the uptake of UFB.

There is no evidence that the Government intervened in the pay-TV issue, and Berry would insist that the warning about court action is a deterrent. But outside Sky, the view is that it has been let off the hook.

Certainly, pay-TV is entering a period of rapid change.

Last Friday - while the paint was still drying on the Commerce Commission findings - Vodafone unveiled a new platform for UFB, called Vodafone TV, built around Telstra's "T Box" and marketed as having more advanced features than Sky TV's's MySky.

Last year Vodafone bought TelstraClear - the New Zealand arm of Australian telecommunications giant Telstra - which runs cable TV services out of Wellington, Kapiti and Christchurch, programmed through Sky.

Ironically, former TelstraClear chief executive Allan Freeth was one of the few open critics of Sky's restrictive programming contracts. In the Herald he demanded greater oversight because Sky restricted Telstra from buying content elsewhere.

But Vodafone will not be antagonising Sky and its control on content.

Unveiling the new platform last Friday, Vodafone said it was not restricted from seeking content from outside Sky, but does not intend to.

Practically, Vodafone will not expend resources on the skills required to obtain content and seems to be happy to be largely a rebroadcaster of Sky.

Vodafone chief executive Russell Stanners is understood to have a strong rapport with Fellet.

ULTRA TV There are no signs yet what role Telecom will have in the new era of UFB television, and whether it will be more independent in seeking content outside of Sky's control.

This week Telecom announced its umbrella "Ultra" campaign, focused on upgrades of smartphone deals alongside access to 4G and Wi-Fi, and incorporating new entertainment content through UFB.

Chief marketing officer Jason Paris said Telecom was focused on mobility and the Auckland market, but had incorporated UFB into the new "Ultra" branding.

A new division - Telecom Digital Ventures - is looking at options but he doubted this would be linked with set-top boxes such as Vodafone TV.

"Our view is that set-top boxes are going to be bypassed and customers are going to be managing their content in the cloud, especially with the penetration of internet-ready televisions."

Entertainment was a big part of the package, Paris said, but it was about many more services than that. He said he and Telecom chief executive Simon Moutter maintained a good relationship with Sky.

INJUNCTION LIFTED

The Maori Television current affairs programme Native Affairs is pushing ahead with the third part of an investigation into the Te Kohanga Reo National Trust.

The trust board applied for an urgent injunction in the High Court at Wellington on September 23 but withdrew it on Wednesday.

The Native Affairs items questioned the trust's priorities and its maintaining a healthy bank balance while individual language nests were suffering. The third and final item will be screened on Monday.

Meanwhile, an announcement is expected soon that Maori TV general manager of finance and administration Alan Withrington will take over as acting chief executive, due to the troubled process of appointing a head for the broadcaster.

Details of the amended and renewed attempts to find a new chief executive are expected next week, and a key issue will be whether the two finalists - Richard Jefferies and Paora Maxwell - will be included in the new selection process.

Many staff signed a petition against the board appointing Maxwell, and the board abandoned the process, saying it was unable to decide, but not before high-profile Maori entrepreneur Ian Taylor resigned over his unhappiness with the appointment process.

John Drinnan is the media writer for the New Zealand Herald. A business journalist for twenty years, he has been editor of the specialist film and television title "Screen Finance" in London, focussing on the European TV and film industry. He has been writing about media in New Zealand since the deregulation of the television industry in the late 1980s. He is focused on the business side of the digital revolution in media.